When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that states you should only consider refinancing if your new interest rate is at least two points below your existing rate? Maybe several years ago that was good advice, but as refinance costs have been getting lower, it could be time to take a serious look. A refinance is often worth its cost several times over, because of the benefits that can come, along with a reduced interest rate.
Benefits from Refinancing
When you refinance, you may have the ability to reduce your interest rate and mortgage payment amount, sometimes considerably. You might also have the option to "cash out" a portion of your home equity, which you are able use to consolidate debt, make home improvements, or take a vacation. With lower interest rates, you may also be able to build your home equity more quickly by changing to a shorter-term mortgage.
Fees and Expenses
As you probably expect, you'll have to pay for the the refinance process. With your refinance, you're paying for basically the same things you paid for during your current mortgage loan. Included in your costs can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
Paying discount points can help you get a lower interest rate. The money you'll save on the life of the mortgage loan may be significant if you have paid up front about 3% of the new loan balance. We recommend that you talk to a tax professional before acting on rumors that these paid points may be deducted on your federal income taxes.
Speaking of taxes, when your interest rate is reduced, it follows that you will also be lowering the interest amount that you'll be able to deduct from your federal income taxes. This is one more cost that some borrowers take into consideration. We can help you do the math! Call us at (207) 571-8034.
Most people find that the savings per month quickly outweigh the initial expenses of refinancing. We can help you explore your options, considering the effect a refinance could have on your taxes, how likely you might be to sell in the next couple of years, and your cash on hand. Call us at (207) 571-8034 to get you started.
Curious about refinancing your home? Call us at (207) 571-8034.